Too-big-to-fail banks’ profits almost entirely paid for by taxpayers

UPDATE: A new analysis shows that the federal subsidy for too-big-to-fail Big Banks is actually ten times larger than once thought. It’s on the order of $780 billion a year. That’s equal to the size of the entire stimulus bill, but every single year forever. The stimulus bill was a one-time shot for $787 billion, this is that much money every year.

In an alarming new study we learn that America’s largest banks are living on thin financial ice. If it weren’t for government-sponsored corporate welfare, to the tune of $83 billion a year, America’s top five too-big-to-fail banks would only break even financially.

But the system is rigged to actually create and sustain “too big to fail” — to give these banks an incentive to seek bigger and bigger government subsidies, and bailouts.

A really good analysis from Bloomberg:

Banks have a powerful incentive to get big and unwieldy. The larger they are, the more disastrous their failure would be and the more certain they can be of a government bailout in an emergency. The result is an implicit subsidy: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail….

How much are those lower rates worth to the banks?  Bloomberg comes to a shocking conclusion:

Wall Street

Wall Street via Shutterstock

Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of $83 billion a year. To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.

The top five banks — JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc…. with almost $9 trillion in assets, more than half the size of the U.S. economy — would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.

That last line is both chilling and infuriating: “the profits they report are essentially transfers from taxpayers to their shareholders.”

Without the subsidy, the banks only break even.  We the taxpayer are quite literally keeping them alive through unfair competition.  Our taxes are their profits.

The banks regularly bully their way into soft regulation, easy money and a dominating position over the political class — who knew they were just a bunch of paper tigers?  Well, actually, all of us knew, from Paul Krugman and Joe Stiglitz down to the progressive blogs.

So why is this issue important? For starters, there is a lot of taxpayer money involved, and as we’ve already witnessed, these too-big-to-fail banks can bring us all down, quickly. Second, it’s not exactly cheap bailing them out, and the losses to the broader economy go well beyond just the banking industry.

Also, and perhaps more important, is that these banks make up the business class that’s at the forefront of the assault on what’s left of the social safety net. You may recall Goldman Sachs CEO Lloyd Blankfein, the guy who Obama has a strange bromance with, adjusted bonus payout dates in both the US and UK to avoid paying taxes. You know, as in the taxes that saved his entire lifestyle.

Lloyd Blankfein, CEO of Goldman Sachs

Lloyd Blankfein, CEO of Goldman Sachs. Source: Financial Times

Even worse is Blankfein’s insistence on bashing programs that are critical to middle class Americans. It’s the Blankfeins of the world that want to take your Medicare and Social Security away.  God forbid we ran out of money and there weren’t any left to bail out the banks next time, right?

Then there’s my other favorite bankster, good old Jamie Dimon of JPMorgan. Dimon is the delightful fellow who ignored the warnings and ended up costing the bank, and our taxpayers, billions.

Since these banks really aren’t turning a profit without government welfare, what would JPMorgan look like without those handouts? For Dimon, banking rules that help protect taxpayers from bailing out the gambling banks are “un-American.”

The major bank chiefs have been quite vocal about trashing the social system, just as they trashed our economy. But when it comes to helping Americans, the banks have little interest beyond their next bailout.

It’s time for the political class to wake up and realize that these people are destructive to society, instead of inviting them to play rounds of golf or join discussions about job creation. Job creation is not their goal. Their goal is to squeeze tax dollars, while bleating on about the free market, while they pick your grandmothers pocket.

Their record confirms this is the hard truth of the day.

An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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10 Responses to “Too-big-to-fail banks’ profits almost entirely paid for by taxpayers”

  1. SkippyFlipjack says:

    Everyone at Bloomberg knows fifty times as much about finance as I do, but can someone explain how this idea that the taxpayers are shelling out the $83 billion isn’t total nonsense?

  2. samizdat says:

    Um, well, du-uuuh…The banks have been insolvent since day one of the Wall St Ponzi scheme-generated collapse. Why that was assumed to have changed, and why Bloomberg has just stumbled upon this, is illustrative of how ineffectual journalism is today. It also indicates the hideously out-sized malfeasance, fraud, and lies coming from the Ruling Class, including the elected whores who call themselves our representatives.

    We may be entering a new era of 19th Century boom-bust cycling, with the major difference of the government coming to the aid of the idiots who get us into this mess, in addition to the idiots feeling it is necessary to gut the entirety of public infrastructure in order to maintain the gravy train at our expense. Why would any of these sociopaths feel the need to temper their greedy, pathological urges to render the rest of the country–and the planet for that matter–in a state of permanent penury, if there are no repercussions?

  3. lynchie says:

    well you don’t get a vote.

  4. cheekyboy5000 says:

    Goldman Sachs and others know they have the country and the economy by the balls. They can get away with it, because the are too big to fail, and, more importantly, the have the political system locked down, right up to the Presidency. They hide in plain sight, and nobody stops them.

  5. BeccaM says:

    Unfortunately, your vote — and mine — do not matter. Nor whether we’ll be fooled by their claims that they must be saved, regardless of cost. They’ve bought our government, which is why they will never go to jail, only have guaranteed profits.

  6. dddavid says:

    At this point, if they need another bailout, my vote would be NO. The only way they would get it is if through a bankrupcy. (i.e. All their stock becomes worthless, and the gov’t owns them, and then splits the company into 3-4 pieces and sells the stock after they recover.) I will not be fooled again, and any politician who is will have his butt handed to him in the next election. And the guys in charge can all go to jail if fraud is involved.

  7. SkippyFlipjack says:

    It’s funny that both the source article and Chris’s summary take a sort of misleading angle on an interesting issue. This $83 billion “subsidy” just isn’t a subsidy as most people would think of it, and I don’t see how it comes out of taxpayers’ pockets.

    The government has shown that it will bail out the biggest banks, the ones “too big to fail”. (That’s the part we’d think of as taxpayer-funded corporate welfare.) So the biggest banks perversely get the best credit ratings since they’re the ones the government won’t let fail. This results in better interest rates from creditors than smaller, more responsible banks would get, and the study estimates this savings at $83 million. This doesn’t come from taxpayers, however, it comes from the bank’s creditors. (Unless the bank is borrowing from the government, I guess; I don’t know how that system is all connected.)

    There is a taxpayer cost, of course — since the preferential interest rate is a result of bailouts, the cost of the bailouts is the price we taxpayers have to pay for the banks to enjoy low interest rates. There’s much to hate about the collusion between the banks and the government, so there’s no need for any misleading reporting.

  8. CaenAshlar says:

    “Jobs” is code for profits in Wall Street speak

  9. guest1 says:

    End the Fed end the 1%

  10. RRRobot says:

    Nationalize the banks. We already pay for them anyways, it’s time we own them.

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